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Indonesia's new CCS/CCUS regulations test policy waters in Asia Pacific

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Indonesia's new CCS/CCUS regulations test policy waters in Asia Pacific

Highlights

One of the first Asia Pacific nations to draft CCS/CCUS policies

Paves the way for CCS use in enhanced oil recovery

Malaysia, Thailand likely to follow Indonesia's lead: law firms

  • Author
  • Eric Yep
  • Editor
  • Adithya Ram
  • Commodity
  • Energy Transition LNG Natural Gas Oil Metals

Indonesia's recently-launched regulations for carbon capture utilization and storage projects are among the first in the Asia-Pacific region and could become the yardstick for successful deployment of similar policies as countries move towards net zero goals.

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The rules also raise hopes for accelerating flagship hydrocarbon projects like the Abadi LNG terminal project that have floundered for years and are now contingent on CCS deployment to manage relatively high CO2 content.

On March 10, the Ministry of Energy and Mineral Resources said it was launching new rules [regulation number MEMR 2/2023] for CCS and CCUS to support upstream oil and gas business activities and help decarbonize the extraction industry.

"The Indonesian government has openly declared that CCS and CCUS will form an important and integral part of its energy transition policy towards a net-zero target. Whilst certain pilot projects have already been initiated, there is no doubt that the new regime provided by MEMR 2/2023 will now pave the way and provide a more stable and legally robust framework to allow for the development of commercial scale projects in Indonesia," law firms Oentoeng Suria & Partners and Ashurst said in a March report.

The regulation provides much needed substance and clarity to the scope and requirements of CCS/CCUS activities across the archipelago and complements the recent stream of regulations on carbon pricing and trading, they said in a joint note to clients.

They said the regulation will undoubtedly raise a host of other legal issues, such as ensuring quality specifications, addressing leakage risk and allocating title and risk in the context of commingled carbon, but these issues will need to be worked through.

According to the International Energy Agency, the successful global deployment of CCUS depends on robust regulatory frameworks with the main objective being "to ensure safe, secure and permanent CO2 storage in deep geological formations."

The energy think tank's guidelines to member states in 2022 says CCUS regulations should ensure the protection of the environment and public health, clarify rights and responsibilities of stakeholders, provide a legal foundation for the long-term management of CO2 storage resources and build public confidence in the technology.

These are likely to become yardsticks for Indonesia's new policy framework as the Southeast Asian country has faced challenges in providing clear rules for foreign investors in its extraction industries.

First mover advantage

Indonesia's CCS/CCUS policy is also unique because it is one of the many countries that were expected to be the first to test legal and regulatory frameworks. According to the IEA, more than 20 national and sub-national jurisdictions had established laws for CCUS in 2022, but new projects are being developed in more than 25 countries that don't have any rules.

While CCS refers only to carbon capture and storage, CCUS covers the usage of CO2 as a feedstock in other industries. Most CCUS projects so far have been to boost oil and gas production from depleted reserves and Indonesia's regulation is along similar lines.

However, the Asia-Pacific region lags Europe, Latin America and the Middle East in upstream activity due to declining reserves. Countries like India, China, Malaysia, Indonesia, Thailand and Australia are still pushing to keep hydrogen output going where possible.

"We anticipate Malaysia will be watching these developments closely as it has CCS regulations currently under development, as well as Thailand which has indicated that it will also develop legislation," Oentoeng Suria & Partners and Ashurst said.

They said details of the new Indonesian rules, particularly in relation to the somewhat controversial area of enhanced oil & gas recovery, will also be of interest to various Middle Eastern jurisdictions which are currently in the process of developing their own CCS/CCUS regulatory frameworks.

"A space to watch will be whether the Indonesian government decides to follow in the footsteps of the US, the UK, Europe and others in offering significant financial incentives to attract investment across the CCS/CCUS value chain," the law firm said.

The Biden Administration's Inflation Reduction Act has emerged as a game changing climate regulation with millions of dollars in tax breaks and credits for CCUS technologies. The IRA has forced Europe and Australia to respond with their own policies, which could be a challenge for Indonesia that has historically struggled to reign in new hydrocarbon investment.

CCUS activities in the Asia-Pacific region and the Middle East are emerging, led by multiple mega-ton offshore storage permits and capture project announcements in 2022, and momentum will come from CCUS hubs by 2030, according to S&P Global Commodity Insights.

Indonesia's national oil company Pertamina has signed preliminary agreements with oil majors like ExxonMobil and Chevron to develop its own CCS hubs that will rely heavily on the new regulation to proceed smoothly.

Experts said a major hurdle for regional CCS in Asia will be cooperation between nation states, including shared infrastructure and cross-border accounting of CO2. For instance, South Korean energy companies have been waiting for Australian government approvals on cross-border CO2 transport before going ahead with blue hydrogen plans using CCS. Indonesia for now has the first mover advantage.